Benefits of industry self-governance

By Liz Muller

There are times when the actions of one
company (or its contactors) can lead to long-term consequences on the entire
industry. In my July 26th blog I discussed how the BP Deepwater Horizon
spill will likely lead to more restrictive permitting of new deep sea drilling
and increased regulations and engineering control requirements.

Tighter regulations can also result from
an industry's inaction such as not acknowledging corruption or human rights
violations associated with raw material production. For example, The
Dodd-Frank Wall Street Reform and Consumer Protection Act signed by President
Obama on July 21, 2010 mandates new auditing and disclosure requirements for
companies that use certain minerals in their products originating in areas
known to be mined under conditions of armed conflict and human rights abuses. On December 15, 2010, the U.S. Securities and Exchange
Commission proposed rules to implement the provisions of this Act. Its
focus is to ban the use
of metals from the Democratic Republic of the Congo due to human rights
violations that are occurring in that country.

Although the
regulations don't ban the use of conflict minerals, many industries, such as
the electronics and airline industries, are responding to the regulations by
developing programs to rid their supply chains of conflict minerals. These
programs that rely heavily on audits to confirm the origin of a given metal,
are resource intensive, expensive and create new reputational and legal risks
to the companies should the audits not satisfy all interested stakeholders. It
could also lead to a more restrictive number of qualified suppliers (those who
don't purchase any conflict minerals) and more limited source of materials that
could, in turn, lead to higher prices if demand outstrips qualifying supply.

The cotton industry can learn from these
events and proactively mitigate the risk of reputational damage or increased
and burdensome regulations. The industry faces several challenges: 1) cotton is
often perceived as being pesticide and water intensive, 2) the Uzbek
government's use or acceptance of child labor during cotton harvest is gaining
more public attention and action by the U.S. government, and 3) WTO rulings
shifting the landscape of cotton production. The cotton industry could avoid
negative reputational impacts or the risk of future regulations by addressing
the areas of concern (e.g. pesticide use, child labor) as well as communicating
all of the positive aspects of cotton (e.g. natural fiber, creates income to
rural, poor farmers). This may become more beneficial and important as cotton
prices soar and faces competition from synthetic fibers.

Question

Is there a role the cotton industry could
take to minimize the risks to the industry's public perception associated with
the most egregious environmentally and socially conditions?

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